Steel Connect, Inc. EBITDA jumped on 265% and EBITDA Margin increased on 9.4 pp from 3.3% to 12.7%
09/30/2020 • About Steel Connect, Inc. (
$STCN) • By InTwits
Steel Connect, Inc. reported FY2020 financial results today. Here are the key drivers of the company's long term financial model:
- EBITDA Margin is quite volatile: 12.7% in FY2020, 3.3% in FY2019, 4.5% in FY2018, -2.6% in FY2017, -7.1% in FY2016
- Steel Connect, Inc. has high CAPEX intensity: 5 year average CAPEX/Revenue was 16.3%. At the same time it's in pair with industry average of 19.3%
- CAPEX is quite volatile: $12m in FY2020, $15m in FY2019, $488m in FY2018, $5m in FY2017, $8m in FY2016
- The company has business model with low profitability: ROIC is 7.0%
- It operates with high leverage: Net Debt/EBITDA is 3.6x while industry average is 1.7x
Below you can find a comprehensive analysis of the key data driving the company's performance and the stock price.
Revenue and profitability
Steel Connect, Inc.'s Revenue decreased on 4.5%. Revenue decline showed acceleration in FY20Q4 - it was 19.4% YoY. During the last 5 years Revenue growth topped in FY2018 at 47.8% and was decelerating since that time. Having declining revenue the company managed to increase EBITDA margin. EBITDA Margin increased on 9.4 pp from 3.3% to 12.7% in FY2020. EBITDA Margin grew at 4.6 pp per annum in the last 5 years.
Gross Margin increased on 2.6 pp from 18.3% to 20.8% in FY2020. Gross Margin followed a growing trend at 4.1 pp per annum in the last 5 years. SG&A as a % of Revenue decreased on 4.4 pp from 17.6% to 13.2% in FY2020.
Net Income margin increased on 7.5 pp from -8.1% to -0.68% in FY2020.
Investments (CAPEX, working capital and M&A)
In FY2020 Steel Connect, Inc. had CAPEX/Revenue of 1.5%. The company's CAPEX/Revenue showed almost no change from FY2017 to FY2020. It's average level of CAPEX/Revenue for the last three years was 26.3%.
Return on investment
The company operates at low but positive ROIC (7.0%) and negative ROE (-14.6%). ROIC jumped on 11.8 pp from -4.7% to 7.0% in FY2020. ROE surged on 71.3 pp from -85.9% to -14.6% in FY2020. ROIC grew at 6.7 pp per annum in the last 5 years.
Leverage (Debt)
Debt level is 3.6x Net Debt / EBITDA and 4.4x Debt / EBITDA. Net Debt / EBITDA dropped on 9.2x from 12.8x to 3.6x in FY2020. Debt jumped on 14.4% while cash jumped on 133%.
Steel Connect, Inc. has no short term refinancing risk: cash is higher than short term debt (382.4%).
Management team
Steel Connect, Inc.'s CEO Warren G Lichtenstein has spent 4 years with the company. Steel Connect, Inc.'s CFO Douglas B Woodworth has spent 1 year with the company.
Financial and operational results
FY ended 07/31/2020
Steel Connect, Inc. ($STCN) key annual financial indicators| mln. $ | 2016 | 2017 | 2018 | 2019 | 2020 | 2020/2019 |
|---|
P&L
|
|---|
| Revenue | 459.0 | 436.6 | 645.3 | 819.8 | 782.8 | -4.5% |
| Gross Profit | 24.8 | 36.4 | 101.3 | 149.7 | 163.0 | 8.8% |
| SG&A | 57.6 | 54.2 | 101.7 | 144.1 | 103.3 | -28.3% |
| EBITDA | -32.5 | -11.6 | 28.8 | 27.2 | 99.5 | 265.5% |
| Net Income | -61.3 | -25.8 | 36.7 | -66.7 | -5.3 | |
Balance Sheet
|
|---|
| Cash | 130.8 | 110.7 | 92.1 | 32.5 | 75.9 | 133.2% |
| Short Term Debt | 0.0 | 0.0 | 56.0 | 5.7 | 19.8 | 246.2% |
| Long Term Debt | 57.2 | 59.8 | 397.4 | 375.9 | 416.7 | 10.9% |
Cash flow
|
|---|
| Capex | 7.9 | 4.7 | 487.6 | 14.5 | 12.1 | -17.0% |
Ratios
|
|---|
| Revenue growth | -18.3% | -4.9% | 47.8% | 27.1% | -4.5% | |
| EBITDA growth | 548.5% | -64.4% | -349.0% | -5.4% | 265.5% | |
|
|---|
| Gross Margin | 5.4% | 8.3% | 15.7% | 18.3% | 20.8% | 2.6% |
| EBITDA Margin | -7.1% | -2.6% | 4.5% | 3.3% | 12.7% | 9.4% |
| SG&A, % of revenue | 12.5% | 12.4% | 15.8% | 17.6% | 13.2% | -4.4% |
| Net Income Margin | -13.4% | -5.9% | 5.7% | -8.1% | -0.7% | 7.5% |
| CAPEX, % of revenue | 1.7% | 1.1% | 75.6% | 1.8% | 1.5% | -0.2% |
|
|---|
| ROIC | -21.6% | -14.5% | -2.3% | -4.7% | 7.0% | 11.8% |
| ROE | -53.2% | -34.7% | 41.5% | -85.9% | -14.6% | 71.3% |
| Net Debt/EBITDA | | | 12.6x | 12.8x | 3.6x | -9.2x |
Steel Connect, Inc. ($STCN) key quoterly financial indicators
| mln. $ | FY20Q1 | FY20Q2 | FY20Q3 | FY20Q4 | | YoY change |
|---|
P&L
|
|---|
| Revenue | 225 | 215 | 177 | 165 | | 4.7% | 4.5% | -8.6% | -19.4% |
| EBITDA | 28 | 25 | 16 | 26 | | 60.8% | 66.4% | 6.4% | - |
| Net Income | 5 | -4 | -6 | -0 | | - | - | - | - |
Balance Sheet
|
|---|
| Cash | 41 | 30 | 90 | 76 | | -50.6% | -67.5% | 342.9% | 133.2% |
| Short Term Debt | 6 | 21 | 18 | 20 | | -89.2% | -62.2% | 216.3% | 246.2% |
| Long Term Debt | 375 | 422 | 421 | 417 | | -5.4% | 6.8% | 11.8% | 10.9% |
Ratios
|
|---|
| Gross Margin | 19.7% | 21.0% | 18.9% | 24.3% | | 1.9% | 2.8% | -0.1% | 6.1% |
| EBITDA Margin | 12.3% | 11.5% | 9.2% | 15.8% | | 4.3% | 4.3% | 1.3% | 25.6% |
| Net Income Margin | 2.1% | -1.7% | -3.5% | -0.2% | | 5.6% | 4.0% | 1.5% | 18.4% |
Peers in Data Processing & Outsourced Services
Below we provide Steel Connect, Inc. benchmarking against other companies in Data Processing & Outsourced Services industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.
Top companies by Revenue growth, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Square, Inc. ($SQ) | - | 29.6% | 49.0% | 42.9% | 101.5% |
| Global Payments Inc. ($GPN) | - | 37.2% | -15.3% | 45.9% | 51.1% |
| Fiserv, Inc. ($FISV) | - | 3.5% | 2.2% | 74.9% | 45.8% |
| NIC Inc. ($EGOV) | - | 5.8% | 2.5% | 2.7% | 30.0% |
| StoneCo Ltd ($STNE) | - | 74.3% | 106.0% | 63.1% | 28.9% |
| |
|---|
| Median (39 companies) | 6.7% | 11.8% | 7.4% | 8.9% | -2.7% |
|---|
| Steel Connect, Inc. ($STCN) | - | -4.9% | 47.8% | 27.1% | -4.5% |
Top companies by Gross margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Verra Mobility Corp ($VRRM) | - | 97.4% | 97.5% | 95.7% | 91.5% |
| EVO Payments, Inc. ($EVOP) | - | - | - | 80.2% | 80.8% |
| StoneCo Ltd ($STNE) | 69.7% | 70.8% | 79.5% | 83.4% | 76.8% |
| WEX Inc. ($WEX) | 54.7% | 58.8% | 63.3% | 61.7% | 56.8% |
| Sabre Corporation ($SABR) | 32.2% | 30.1% | 27.8% | 56.6% | 56.6% |
| |
|---|
| Median (31 companies) | 39.5% | 39.5% | 41.0% | 41.7% | 36.7% |
|---|
| Steel Connect, Inc. ($STCN) | 5.4% | 8.3% | 15.7% | 18.3% | 20.8% |
Top companies by EBITDA margin, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Visa Inc. ($V) | 55.6% | 69.2% | 65.8% | 68.1% | 68.5% |
| Mastercard Incorporated ($MA) | 56.9% | 56.5% | 51.8% | 60.9% | 56.6% |
| FleetCor Technologies, Inc. ($FLT) | 52.0% | 50.8% | 55.9% | 57.6% | 52.2% |
| StoneCo Ltd ($STNE) | 31.4% | 26.0% | 53.0% | 62.4% | 52.1% |
| Black Knight, Inc. ($BKI) | 43.0% | 44.6% | 43.3% | 46.0% | 44.9% |
| |
|---|
| Median (38 companies) | 21.3% | 21.1% | 19.4% | 22.2% | 19.1% |
|---|
| Steel Connect, Inc. ($STCN) | -7.1% | -2.6% | 4.5% | 3.3% | 12.7% |
Top companies by CAPEX/Revenue, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| PagSeguro Digital Ltd. ($PAGS) | 6.4% | 4.3% | 1.4% | 5.8% | 22.3% |
| StoneCo Ltd ($STNE) | 7.2% | 18.4% | 8.9% | 12.9% | 11.2% |
| Cardtronics plc ($CATM) | 9.9% | 9.6% | 8.0% | 9.3% | 8.3% |
| Verra Mobility Corp ($VRRM) | - | 11.5% | 7.2% | 6.6% | 6.2% |
| Fiserv, Inc. ($FISV) | 5.3% | 5.0% | 6.2% | 7.1% | 6.1% |
| |
|---|
| Median (38 companies) | 3.2% | 2.9% | 3.0% | 3.3% | 3.1% |
|---|
| Steel Connect, Inc. ($STCN) | 1.7% | 1.1% | 75.6% | 1.8% | 1.5% |
Top companies by ROIC, %
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| Mastercard Incorporated ($MA) | 57.5% | 60.6% | 64.7% | 72.7% | 47.6% |
| International Money Express, Inc. ($IMXI) | -1.3% | -1.4% | 12.1% | 36.0% | 31.4% |
| NIC Inc. ($EGOV) | 63.1% | 52.1% | 39.3% | 26.5% | 30.8% |
| Visa Inc. ($V) | 18.1% | 21.9% | 23.0% | 27.2% | 23.2% |
| Western Union Company (The) ($WU) | 10.7% | 11.9% | 27.8% | 21.5% | 22.1% |
| |
|---|
| Median (39 companies) | 11.7% | 10.7% | 12.1% | 8.3% | 5.5% |
|---|
| Steel Connect, Inc. ($STCN) | -21.6% | -14.5% | -2.3% | -4.7% | 7.0% |
Top companies by Net Debt / EBITDA
| Top 5 | FY2016 | FY2017 | FY2018 | FY2019 | FY2020 |
|---|
| WEX Inc. ($WEX) | 6.7x | 4.4x | 3.1x | 3.4x | 12.1x |
| Exela Technologies Inc ($XELAU) | 8.1x | - | 9.7x | - | 10.7x |
| Alliance Data Systems Corporation ($ADS) | 10.7x | 10.1x | 9.0x | 11.7x | 9.2x |
| Verra Mobility Corp ($VRRM) | - | 10.7x | 6.9x | 3.5x | 4.7x |
| GreenSky, Inc. ($GSKY) | -1.5x | -1.5x | 0.5x | 1.5x | 4.6x |
| |
|---|
| Median (35 companies) | 1.4x | 2.3x | 2.0x | 2.1x | 1.9x |
|---|
| Steel Connect, Inc. ($STCN) | - | - | 12.6x | 12.8x | 3.6x |
